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Tag: budget proposals

  • Tax authorities consider reducing minimum tax rate: Zeeshan Merchant

    Tax authorities consider reducing minimum tax rate: Zeeshan Merchant

    KARACHI: Tax authorities have agreed to consider reducing minimum tax rate for corporate sector and individuals in the upcoming budget, especially in the wake of financial losses due to coronavirus pandemic, a senior tax consultant said.

    “In different meetings with Dr. Abdul Hafeez Shaikh, Finance Advisor to Prime Minister, Razak Dawood, Commerce Advisor to PM and senior officers of Federal Board of Revenue (FBR) have agreed to reduce minimum tax rate for providing relief to mitigate adverse impact of coronavirus,” Zeeshan Merchant, former vice president of Karachi Tax Bar Association (KTBA) said this while talking to PkRevenue.com.

    Merchant, who is also honorary consultant to Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said that the actual proposal for the budget 2020/2021 is to reduce minimum tax rate for corporate sector to 0.5 percent and abolish this tax for two years in case of individuals and Association of Persons (AOPs).

    He said that in meetings Dr. Abdul Hafeez Shaikh and Abdul Razak Dawood appreciated the proposals and promised to consider in the budget for providing maximum relief to businesses.

    Merchant further said that the FBR chairperson also pledged to move this proposals after consideration for incorporation in the Finance Bill 2020.

    He said that due to coronavirus and subsequent lockdown many corporate entities would not able to post significant profits or declare substantial losses for the year.

    Merchant further said that the minimum tax applied on turnover when a taxpayer declare lower profit or declare gross losses to the year.

    The FPCCI in its proposals for fiscal year 2020/2021 said that the existing rate of 1.5 percent minimum tax is very high and results in financial hardships to the taxpayers.

    Due to the current economic conditions and its negative impact on productivity, the businesses are not operating at optimum level.

    According to changes vide Finance Act, 2016 threshold of turnover for individual and AOP for turnover tax at the rate of 1.25 percent decreased from Rs50 million to Rs10 million. This had adversely affected the true declaration of turnover and has created hardship for the taxpayers.

    After changes made in Section 113(1) of Income Tax Ordinance, 2001, now companies have to pay turnover tax even in case of gross loss before charging of depreciation. This has adversely affected the industry.

    Under section 113(2) (C) where Minimum Tax paid under sub section (1) exceeds the actual tax payable under Part I, Clause (1) of Division I, or Division II of the first Schedule, the excess amount is carried forward for adjustment against tax liability of the subsequent tax year(s).

    The FPCCI also proposed to reduce the minimum tax rate and enhance the limit of turnover to Rs50 million.

  • Time limit for customs valuation issuance should be fixed

    Time limit for customs valuation issuance should be fixed

    KARACHI: Federal Board of Revenue (FBR) has been recommended to fix time limit for issuance of customs valuation.

    Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in its proposals for budget 2020/2021, said that the validity of Valuation Ruling under Section, 25-A of the Customs Act, 1969 is life time utill or unless revised or rescinded by the competent authority and Genuine Importer suffer as the Assessing Offices reject the transaction Values and Increase the Values of Assessments.

    Time limit may be fixed for issuance of Valuation Ruling under subsection 1 of section 25A of Custom Act, 1969, may not be more than 30 days and validity period under subsection 4 of section 25A of the Act should not be more than 90 or 120 days as we have fast internet system in the world over.

    (i) The following proviso may be inserted after subsection 1 of section 25A of the ACT,1969.

    “Provided that the time limit to notify the customs values under subsection 1 of section 25A should not me more than 30 days from date of first initiative of the subject exercise”.

    (ii) The words after the “applicable” in subsection 4 of section 25A should be substituted as; “till ninety days from the date of issuance of determined customs values.”

  • FBR advised to make annexure-J mandatory to prevent under reporting

    FBR advised to make annexure-J mandatory to prevent under reporting

    KARACHI: Federal Board of Revenue (FBR) has been advised to make it mandatory the filing annexure-J along with monthly sales tax returns in order to remove disparity between formal and informal sectors.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, said that currently only certain persons as defined under Rule 14 to Sales Tax Rules, 2002 are required to file annexure J.

    Annexure J requires taxpayers to file details of stock in hand in terms of value as well as quantity.

    Other taxpayers are encouraged to file the same but there is no mandatory requirement as per applicable laws to file the same.

    “It is feared that registered taxpayers are under reporting or suppressing their actual sales to escape the sales tax charge as currently there is no mechanism to report the details of stock (Raw material, WIP, and Finished Goods).

    The PBC proposed to make it mandatory for all the taxpayers to file Annexure J along with their monthly sales tax return in order to ensure that sales are not suppressed or made without charging proper sales tax.

    It said that the proposed mandatory requirement would help in removing disparity between formal and informal sectors.

  • FBR urged to clarify income tax relief to group companies

    FBR urged to clarify income tax relief to group companies

    KARACHI: Federal Board of Revenue (FBR) has been urged to clarify group relief under income tax laws regarding a holding company can purchase losses of its subsidiary.

    Pakistan Business Council (PBC) in its proposals for budget 2020/2021 submitted to the FBR, stated that as per Section 59B of the Income Tax Ordinance, 2001, a holding company can purchase the loss of its subsidiary provided there is continued ownership of five years as mentioned in sub-section 2 of Section 59B.

    The PBC said that this subsection 2 of Section 59B has already been misinterpreted by the tax department in various companies that purchase of loss by the holding company is allowed in the sixth year i.e. after the end of continued ownership of five years.

    “Practically speaking, subsidiary companies mostly incur losses in the initial years of establishment due to huge amount of depreciation / initial allowance on new setup (plant & machinery, etc.) and mostly no losses incurred after a period of 5 years (i.e. in the sixth year).”

    Taking the approach used by the tax authorities, practically speaking, none of the holding company would be able to claim losses of its subsidiary.

    Therefore, the PBC suggested following amendment to Income Tax Ordinance:

    At the end of sub-section 2 of Section 59B, an explanation be added as below:

    “Explanation: For the removal of doubt, it is clarified that the holding company can adjust the losses of its subsidiary during the aforesaid period of 5 years.”

    The PBC said that the propose amendment would promote consolidation of businesses.

  • FPCCI recommends audit exemption for commercial importers

    FPCCI recommends audit exemption for commercial importers

    KARACHI – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has called on the government to reinstate audit immunity for commercial importers in the upcoming federal budget 2020–2021.

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  • FBR should shun multiple tax audits

    FBR should shun multiple tax audits

    KARACHI: Business community has advised Federal Board of Revenue (FBR) to shun conducting multiple audits of a taxpayer in a year in order to ensure ease of doing business.

    In its proposals for budget 2020/2021 submitted to the FBR, the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that registered Tax payers receive notices of multiple audits in a year such as Income Tax audit under Section 177 of the Income Tax Ordinance 2001, Withholding Tax audit under Section 161 of the Income Tax Ordinance 2001; Sales Tax audit under Section 25 of the Sales Tax Act 1990.

    Moreover, the taxpayers also receive multiple notices of amendments in assessments under Section 122 of the Income Tax Ordinance 2001 and under Section 111 of the Income Tax Ordinance 2001 to explain sources.

    The multiplicity of audit of a single taxpayer in a single year is against the concept of ease of doing business and creating unnecessary problems for tax payers.

    The FPCCI recommended that multiplicity of audits in a single year be done away with and replaced with the concept of composite audit of registered taxpayers.

    Further, it is suggested that new audit parameters should be enforced after consultation with all stakeholders.

  • FBR proposed to reduce import duty on smartphones

    FBR proposed to reduce import duty on smartphones

    KARACHI: Federal Board of Revenue (FBR) has been urged to reduce customs duty on import of smartphones for the growth of economy.

    In its proposals for budget 2020/2021 submitted to FBR, the Overseas Investors Chamber of Commerce and Industry (OICCI) said that after the implementation of DIRBS and accompanying tax increase, the smartphone penetration in the country has dropped by 6 percent in the current fiscal year.

    “This is primarily due to the reason that for smartphone, we primarily rely on imports,” the OICCI said.

    Smartphones are not only used for communications but are predominantly used as an enabling tool for internet in almost all segments of the economy including finance, education, health, agriculture, social development etc.

    In the digital ecosystem, availability and affordability of these phones plays a major role in the growth of economy.

    All imported mobile phones including smartphones are now heavily taxed, rendering them unaffordable for vast segment of the population.

    This lack of affordability has become major impediment in proliferation of broadband in the country.

    The OICCI recommended:

    i. Retaining the current tax structure on low-end 2G handsets/feature phones (i.e. Rs. 500 as tax per device)

    ii. Reducing taxes on 3G/4G handsets (smartphones) below Rs. 10,000 and cap it to a max of Rs. 1,000/- per device

    iii. Reducing taxes on smartphones in the higher price brackets and cap it to a max of Rs. 5,000/- per device.

  • FBR urged to abolish withholding tax on telecom services

    FBR urged to abolish withholding tax on telecom services

    KARACHI: Federal Board of Revenue (FBR) has been recommended to abolish withholding tax on telecom services considering the rate is too high and a large segment of people living below poverty line.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 said that currently, telecommunication services in Pakistan are subject to withholding tax at 12.5 percent, which is much higher as compared to other sectors.

    Since approximately 30 percent of the population lives below the poverty line and the percentage of return filers is also nominal, imposition of withholding tax on the entire subscriber base is neither fair nor based on sound principle of proportionate taxation.

    The OICCI recommended the FBR to abolish withholding tax to promote the accessibility of internet/data services to the low-income groups.

    The OICCI also highlighted the issue of sales tax on services applicable in provinces.

    In Punjab, KPK, Baluchistan and Sindh, GST on telecom sector is charged from all consumers at 19.5 percent. In the federal capital, this rate is 17 percent.

    It is pertinent to mention that the provinces are levying a much lower rate of GST on other services – i.e. 13 percent – 16 percent.).

    The OICCI recommended:

    i. Reduce and harmonize GST across the country – i.e. a single rate for all services across all jurisdictions.

    ii. Since GST is a consumption tax on usage, the decrease in GST/FED rate will result in increase in usage of telecom services and consequently drive tax collection upwards.

    iii. A recent GSMA study1 concluded that harmonization of GST on mobile services to 17 percent would yield have an estimated PKR 62 billion positive impact on the GDP and exchequer. Additionally, we can expect 4.5 million more subscribers primarily on mobile broadband, which will be further stimulate GDP growth.

  • Reduction in corporate rate for E&P companies recommended

    Reduction in corporate rate for E&P companies recommended

    KARACHI: Federal Board of Revenue (FBR) has been recommended to reduce the income tax rate for exploration and production (E&P) companies especially in wake of massive reduction in international oil prices.

    Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021, said that higher corporate tax rate on exploration and production (E&P) sector should be reduced and aligned to the rate of other corporate sector.

    The applicable tax rate for the Oil and Gas Exploration and Production sector is 40 percent. Before the promulgation of Income Tax Ordinance, 2001, the tax rate was 50 percent to 55 percent, however, the royalty payment to the government was adjusted against the tax liability, resulting in effective tax rate of approximately 35 percent or less.

    Applicability of effective 40% tax rate has in fact increased the tax expense of the Oil and Gas Exploration and Production Companies, as against the incentives given to other sectors of the economy, whereby the tax rate will be gradually reduced to 30 percent.

    The OICCI recommended:

    i. To incentivize oil and gas exploration in the country especially after the massive reduction in the international oil prices, the corporate tax rate on E&P sector should be reduced from the current 40 percent to the rate applicable to other corporate sector by making necessary amendments in the Income Tax Ordinance, 2001 and Regulation of Mines and Oilfield and Mineral Development (Government Control) Act, 1948.

    The OICCI further said that the rate of tax applicable on E&P companies on their Oil & Gas profits are given in their respective PCAs signed with Government.

    Under Rule 4AA of Part I of the Fifth Schedule to ITO 2001, Super tax has been imposed at 3 percent for E&P companies earning Rs 500 million (equivalent to US$ 5million).

    The OICCI recommended:

    i. It is critical for E&P sector and recommended that the tax applicable should be calculated strictly in accordance with the provisions of the respective PCAs signed between Government and each E&P company & are legally binding, without changes throughout the full Lease period.

    Tax credits under section 65A and 65B are not currently being allowed to E&P companies by the tax authorities despite the fact that appellate Tribunal decided the matter in favor of E&P companies.

    Therefore, the FBR should issue necessary clarification.

    The OICCI highlighted issue of depletion allowance – under Rule 3 of part 1 of the Fifth Schedule of Income Tax Ordinance, 2001.

    Clarity over definition of well head value for computation of Depletion allowance is required.

    As per clause 3 of Fifth Schedule, depletion is calculated at the rate of 15 percent of the gross receipts representing well-head value of production, but not exceeding 50 percent of taxable income.

    E&P industry interprets above by calculating depletion at 15 percent of Gross Revenue before royalty deduction. Tax authorities calculate depletion at 15 percent of Gross Revenue after deduction of royalty.

    Therefore, it is recommended:

    Amendment should be introduced in the relevant clause in favor of E&P companies for depletion to be calculated at the rate of 15 percent of revenues before royalty deduction.

    Under the sales law the rate of sales tax is 17 percent. In case of Independent Power Producers (IPP’s), they are required to pay Output sales tax (GST-Output) at 17 percent on the value of sale of electricity after adjusting the Input sales tax (GST-Input) on Residual Fuel Oil (RFO) paid by them to PSO. Currently the GST-Input rate is 20%. This is resulting in significant adverse cash flow for IPPs as well as is increasing the refund due from FBR.

    Therefore, it is recommended that the rate on electricity should be raised from 17 percent to 20 percent as has been done in the case of diesel based IPPs, so that input and output GST rates are same.

  • FBR urged to reduce regulatory duty on lighting fittings

    FBR urged to reduce regulatory duty on lighting fittings

    KARACHI: Federal Board of Revenue (FBR) has been urged to reduce regulatory duty on lighting fittings in alignment with LED bulbs and LED tubes.

    The Overseas Investors Chamber of Commerce and Industry (OICCI) in its proposals for budget 2020/2021 submitted to the FBR, stated that current regulatory duty on lighting fittings with fixed / fitted LED under HS code 9405.1030 and 9405.4020 is 30% whereas on LED bulbs (HS code 8539.5010) and LED tubes (HS code 8539.5020) the same is 2 percent.

    Therefore, it is recommended that regulatory duty should be reduced on Lighting fittings with fixed / fitted LED under HS code 9405.1030 and 9405.4020 in alignment with LED bulbs and LED tubes.

    Consequent to amendments in law relating to IOCO arrangements, sales tax (including duties) is exempt under fifth schedule of Customs Act under serial no 23 on all type of housing i.e. ‘’Housing/Shell, shell cover and base cap for all kinds of LED Lights and Bulbs under respective headings.

    Accordingly, sales tax should have been exempt on said product under sixth schedule of STA 1990. However, this is not the case as related amendment in sixth schedule of STA 1990 was not made.

    To align with amendment in fifth schedule of Customs Act under serial no 23, consequent amendment be made in serial no. 15A of sixth Schedule of STA 1990 for description of goods for HS code 9405.1090 be changed from Aluminum Housing /shell for LED (LED Light Fixture) to Housing/Shell, shell cover and base cap for all kinds of LED Lights and Bulbs as.

    The OICCI said that through Finance Supplementary (Amendment) Act October 2018, Energy Saving Tubes under HS code 8539.3120 are exempted from sales tax (including duties) under serial no. 22 (xiii) of fifth Schedule of Customs Act 1969. However, related amendments are not made in table 3, serial no. 15 of sixth Schedule of STA 1990.

    To align with amendment in fifth schedule of Customs Act under serial no 22 (xiii), consequent amendment be made in serial no. 15 in table 3 of sixth Schedule of STA 1990 by addition of HS code 8539.3120.

    Taxation of Export of Services and Execution of Contracts outside Pakistan: As per Clause (3) of Part II of second schedule of ITO, the rate of tax has been increased from 1 percent to 3.5 percent and 4 percent on account of execution of contract outside Pakistan and export of services respectively. This significant increase in Finance Act 2016 has adversely affected the export business of companies.

    The rate of tax needs to be reverted back to 1 percent.